You typically have four options:

1. You can leave your retirement plan where it is, your former employer's plan (if they allow that),

2. You can ‘roll it’ over into your new employer's retirement plan,

3. You can ‘roll it’ over into a Traditional or Roth IRA, or

4. You can cash it out. If retiring, a direct rollover into an IRA is usually recommended to maintain tax-deferred status and avoid early withdrawal penalties.

You may want to leave your retirement plan at your former employer (if they allow it) because you already know it.

• You already know the investment options and you already have the online logins set up. It’s easy.

• You may possibly get institutional pricing (cheaper investments) if your retirement plan stays put.

• You will also enjoy Federal protection under the Employee Retirement Income Security Act of 1974 (ERISA).

The drawbacks?

• Your old HR department and retirement plan provider has no incentive to help you with the retirement plan. Even though they hold your money, your retirement plan provider serves your old employer, not you.

• You are restricted in the investment options your retirement plan has allowed, which may lack the specific asset classes or flexibility you want. For example, if you want to invest in a specific stock or fund, you won’t be able to do so.

• Also, many former employers make inactive or former employees pay higher retirement plan administration fees, so you may not enjoy cheaper investment after all.

• If you have changed jobs several times, you may have multiple accounts from multiple past employers. This makes it difficult to keep track of what you have and where it is which makes it hard to keep a balanced portfolio and you could possibly miss IRA mandated Required Minimum Distributions (RMDs).

By combining your prior employer’s retirement plan into your new retirement plan

• You will reduce administrative clutter, making it easier to track your overall portfolio performance and manage your investments.

• You may also get institutional pricing, mentioned above, although this is not guaranteed.

• By combining accounts, once you reach Required Minimum Distribution age, you have fewer accounts which makes the RMD calculation simpler.

The drawbacks?

Similar to leaving your retirement plan with your old employer.

• You’ll be limited to the investment choices your new employer’s retirement plan allows.

• Keeping your investments with another employer plan may limit your ability to utilize certain individual tax strategies, such as Roth conversions.

The two main benefits of moving your old retirement plan into an IRA are choice and control.

• Unlike your old or current employer plans which are strictly limited to a pre-selected menu of mutual funds chosen by the retirement plan sponsor, an IRA gives you access to a world of investment options from bonds to stocks to gold to alternative investments, like Real Estate Investment Trusts.

• Once the funds are in an IRA, you will then be able to control what to do with those funds. For example, you may wish to do multi-year Roth conversions. This is not only allowable with an IRA, but usually very easy.

• Rolling over your former employer retirement plan in one IRA makes your life easier and better organized. You will have a clearer picture of your overall wealth, making it much easier to monitor your assets and track required minimum distributions.

‘Cashing out’ your retirement plan is usually a bad idea.
Cashing out your retirement plan makes the assets immediately taxable causing you to lose possibly half of the assets you have saved.

• Example: if you are 45 and ‘cash out’ your $100,000 retirement plan, the IRS will levy a 10% penalty (or $10,000) for taking an early distribution. The entire account will then be taxed at your income tax rate. If it is 24%, for example, that would be $24,000, for a total of $34,000. This does not take into account state income tax rates.

Another cost is losing out on years of tax-deferred growth that retirement account may have had.

When you do a direct rollover

• Your retirement plan money will move straight from your former employer’s retirement plan custodian to your new one, completely avoiding taxes.

• You may receive a check when doing a direct rollover but the check will be made payable to the new custodian. For example: The payable line may read “New Investment Custodian FBO Jane Smith”. FBO stands for “For Benefit of”. You do not need to endorse this check.

When you do an indirect rollover, a check is issued to you.

• The payable line will read simply “Jack Smith” and you have exactly 60 days to deposit those funds into a new retirement account.

• If you miss that 60-day deadline by one day, you’ll trigger income taxes and a 10% early withdrawal penalty.

Yes. You can cash out all or part of it but as mentioned above.

• But anything ‘cashed out’ will be subject to Federal and state income taxes and a 10% early withdrawal penalty.

• More importantly, it permanently strips away years of compound growth, severely hurting your long-term retirement security.

• The IRS does allow certain hardship withdrawals however, it is important to work with an advisor to see if your hardship qualifies.

You can simply roll your company stock straight into a standard IRA but that can cause you to miss out on significant tax savings.

• You may want to utilize Net Unrealized Appreciation (NUA).

• NUA is a specialized tax provision under IRS rules (Section 402(e)(4)) that may provide significant tax savings for individuals who hold highly appreciated employer stock inside a qualified employer-sponsored retirement plan, such as a 401(k) or profit-sharing plan.

• There are strict requirements to qualify for the NUA and navigating the IRS’s rules can be tricky so a qualified advisor is strongly suggested.

This will depend on your current tax bracket versus what you expect your tax bracket to be in retirement.

• A Traditional IRA offers immediate tax-deductible savings now.

• A Roth IRA requires you to pay taxes today with the promise that our future withdrawals and growth will be tax-free.

You may have been automatically enrolled in your retirement plan, not even needing to fill out any paperwork. Millions of workers have then failed to log in to their retirement accounts to name their beneficiaries.

If you change jobs and leave an old account behind without having designated a beneficiary, state default rules or outdated selections (like an ex-spouse) legally override your will.

Your employer matching contributions often have a vesting schedule, meaning you only "own" those matching dollars after working there for a number of years.

If you change jobs before you are fully vested, you may forfeit a portion of the employer match attached to your account.

In your statement, you will see this as your vested and unvested balances.

Your vested balance is what you own and can take with you now if you leave your company.

Your unvested balance only becomes yours if you stay longer with your company.

Yes, you can contribute to both every year.

However, make sure you do not over contribute to your IRAs. The IRS limits how much you can and cannot contribute at various ages.

Also, depending on how high your income is or whether or not your employer provides health insurance, you may not be able to deduct contributions to your Traditional IRA OR contribute to a Roth IRA at all.

The IRS lists IRA contribution limits here.

Before your first day at a new company,

• Review your health insurance options (such as COBRA versus marketplace plans),

• Evaluate your emergency cash reserves to bridge any income gaps, and

• Carefully plan how your old retirement accounts will be consolidated.

Whether you combine your former employer’s retirement plans into one new employer’s plan or your own IRA, your life will be easier and better organized.

You will have a clearer picture of your overall wealth, making it much easier to monitor your assets and track required minimum distributions.

Rolling over a 401(k), 403(b), or 457(b) is difficult because plan administrators have high liabilities and little incentive to make it easier.

• Plan administrators are liable for fraud and unauthorized access so they have implemented strict identity checks and authorization rules.

• Plan administrators often require a multi-page physical form that they require the participant complete to initiate the rollover.

• Many retirement plan providers still use physical paper checks sent through the mail instead of secure digital transfers.

• The plan administrator also has no business incentive to make this process easy. They lose management fees when you leave, so why would they make your departure fast or easy?

Moving your 401(k), 403(b), or 457(b) to an IRA requires you to complete your former employer’s retirement plan withdrawal forms perfectly. Plan administrators are notoriously rigid, and a single missing item or unchecked box will get your request rejected.

The most common paperwork errors that delay rollovers include:

• Requesting a transfer before your new IRA is officially open and assigned account number. Your new IRA custodian will be able to tell you exactly who your former employer’s retirement plan administrator should make the check out to.

• Depending on your plan's rules, your spouse may be legally required to sign and sometimes notarize consent waiver before assets can leave the plan.

• The name on your retirement plan and your IRA don’t match. For example, if my IRA is titled Howard McEwen but the plan I’m trying to rollover is Howard L. McEwen, the paperwork may be rejected.

• The address your retirement plan has on file may be different from your current address. Oftentimes, especially with the increase in e-delivery, people forget to update their address. If this is the case,  the paperwork will be rejected and at least a 30-day hold may be placed on the account.

• For large dollar accounts, a Medallion Signature Guarantee may be required. If it’s missing, the paperwork will be rejected. A Medallion Signature Guarantee is a certification stamp that acts as a legal and financial safeguard, protecting shareholders, brokerages, and transfer agents against securities fraud and unauthorized account transfers. It can often be obtained at major banks. My advice: call ahead. Not many bank employees are able to give a Medallion Signature Guarantee.

• Missing information such as social security numbers, date of birth or even signatures. It’s best to triple check your work.